Ramsey Company produces speakers (Model A and Model B). Both products pass through two producing departments. Model A's production is much more labor-intensive than that of Model B. Model B is also the more popular of the two speakers. The following data has been gathered for the two products: Product Data Model A Model B Units produced per year 10,000 100,000 Prime costs $153,000 $1,530,000 Direct labor hours 143,000 310,000 Machine hours 21,000 196,000 Production runs 40 60 Inspection hours 900 1,300 Maintenance hours 8,000 92,000 Overhead costs: Setup costs $300,000 Inspection costs 209,000 Machining 318,200 Maintenance 260,000 Total $1,087,200 Required: 1. Compute the overhead cost per unit for each product by using a plantwide rate based on direct labor hours. (Round to two decimal places.) 2. Compute the overhead cost per unit for each product by using ABC. (Round rates and unit overhead cost to two decimal places.) 3. Suppose that Ramsey decides to use departmental overhead rates. There are two departments: Department 1 (machine intensive) with a rate of $3.90 per machine hour and Department 2 (labor intensive) with a rate of $1.20 per direct labor hour. The consumption of these two drivers is as follows: Department 1 Machine Hours Department 2 Direct Labor Hours 128,000 Model A 10,000 Model B 190,000 290,000 Compute the overhead cost per unit for each product by using departmental rates. (Round to two decimal places.) 4. CONCEPTUAL CONNECTION Using the activity-based product costs as the standard, comment on the ability of departmental rates to improve the accuracy of product costing. Did the departmental rates do better than the plantwide rate? Plantwide Rate Shaded cells have feedback. 1. Compute the overhead cost per unit for each product by using a plantwide rate based on direct labor hours. (Round to two decimal places.) Plantwide rate: $2.40 per DLH Points: 1/1 Model A: Model B: $34.32 $7.44 overhead cost per unit overhead cost per unit Points: 2/2 2. Compute the overhead cost per unit for each product by using ABC. (Round rates and unit overhead costs to two decimal places.) Model A: $25.71 X overhead cost per unit $8.30 X overhead cost per unit Model B: K Points: 0/2 Note: Be sure to complete both tables below. Activity Driver Activity Rate Setups Production runs $3,000.00 $95.00 per per run hour Inspections Inspection hours Machining Machine hours $1.47 $2.60 per hour per hour Maintenance Maintenance hours Points: 12/12 Overhead assignment Model A Model B Setups $120,000 $180,000 Inspections 85,500 123,500 Machining 30,794 X 287,406 X Maintenance 20,800 239,200 Total overhead $257,094 X $830,106 X + Units produced 10,000 100,000 Overhead per unit $25.71 X $8.30 X Points: 8/14 3. Suppose that Ramsey decides to use departmental overhead rates. There are two departments: Department 1: (machine intensive) with a rate of $3.90 per machine hour and Department 2: (labor intensive) with a rate of $1.20 per direct labor hour. The consumption of these two drivers is as follows: Department 1 Machine Hours Department 2 Direct Labor Hours Model A 10,000 128,000 Model B 190,000 290,000 Compute the overhead cost per unit for each product by using departmental rates. (Round to two decimal places.) Model A: Model B: $19.26 $10.89 per unit per unit Points: 2/2
